EXHIBIT 10
FORM OF ADVISORY AGREEMENT
This Advisory Agreement is made by and between Alanar Real Estate
Investment Trust Series 1 Corporation, an Indiana corporation (the "Company"),
and Alanar Incorporated, a Georgia corporation (the "Advisor").
PREFACE
A. The Company has filed with the Securities and Exchange Commission a
Registration Statement on Form S-11 (File No. 333-xxxxx) for the sale of 1
million to 2.5 million shares to be offered to the public;
B. The Company may subsequently issue securities other than such shares
or otherwise raise additional capital;
C. The Company intends to qualify as a REIT;
D. The Company desires to avail itself of the experience, sources of
information, advice and assistance of, and certain facilities available to, the
Advisor and to have the Advisor undertake the duties and responsibilities set
out in this Advisory Agreement, on behalf of, and subject to the supervision of
the Board of Directors of the Company; and
E. The Advisor is willing to render such services, subject to the
supervision of the Board of Directors of the Company, on the terms and
conditions set out in this Advisory Agreement;
THEREFORE, the Company and the Advisor agree as follows:
ARTICLE 1
DEFINITIONS
1.01. Definitions. As used in this Advisory Agreement, the terms set out in
this Section 1.01 are defined as follows:
(a) "Acquisition Expenses" means expenses including but not limited to
legal fees and expenses, travel and communications expenses, costs of
appraisals, non-refundable option payments on property not acquired,
accounting fees and expenses, title insurance and miscellaneous expenses
related to selection and acquisition of properties, whether or not
acquired.
(b) "Acquisition Fee" means the total of all fees and commissions paid by
the Company to any party in connection with making or investing in mortgage
loans or the purchase, development or construction of property by the
Company. Included in
1
the computation of such fees or commissions shall be any real estate
commission, selection fee, Development Fee, Construction Fee, nonrecurring
management fee, loan fees or points or any fee of a similar nature, however
designated. Excluded shall be Development Fees and Construction Fees paid
to persons not affiliated with the Advisor in connection with the actual
development and construction of a project.
(c) "Advisor" means Alanar Incorporated, a Georgia corporation.
(d) "Advisory Agreement" means this advisory agreement.
(e) "Advisory Fee" means the fee paid by the Company to the Advisor in
consideration of management of the assets of the Company.
(f) "Affiliate" means, with regard to another person, any of the
following:
(i) Any person directly or indirectly owning, controlling, or
holding, with power to vote ten percent or more of the outstanding
voting securities of such other person;
(ii) Any person ten percent or more of whose outstanding voting
securities are directly or indirectly owned, controlled, or held, with
power to vote, by such other person;
(iii) Any person directly or indirectly controlling, controlled by, or
under common control with such other person;
(iv) Any executive officer, director, trustee or general partner of
such other person; or
(v) Any legal entity for which such person acts as an executive
officer, director, trustee or general partner.
(g) "Appraised Value" means value according to an appraisal made by an
Independent Appraiser.
(h) "Articles of Incorporation" means the articles of incorporation of the
Company filed with the Secretary of State of Indiana pursuant to the
Indiana Business Corporation Law, as amended from time to time.
(i) "Average Invested Assets" means the average of the aggregate book
value of the assets of the Company invested, directly or indirectly, in
securities, Properties and in Loans secured by real estate, before reserves
for depreciation or bad debts or other similar non-cash reserves, computed
by taking the average of such values at the end of each month during such
period.
(j) "Board," "Board of Directors" and "Directors" means the board of
directors
2
of the Company.
(k) "Bylaws" means the bylaws of the Company.
(l) "Code" means the Internal Revenue Code of 1986, as amended.
(m) "Company" Alanar Real Estate Investment Trust Series 1 Corporation, an
Indiana corporation.
(n) "Construction Fee" means a fee or other remuneration for acting as
general contractor and/or construction manager to construct improvements,
supervise and coordinate projects or to provide major repairs or
rehabilitation on a Property.
(o) "Contract Price for the Property" means the amount actually paid for
or allocated to the purchase, development, construction or improvement of a
Property, exclusive of Acquisition Fees and Acquisition Expenses.
(p) "Development Fee" means a fee for the packaging of a Property
including negotiating and approving plans, and undertaking to assist in
obtaining zoning and necessary variances and necessary financing for the
specific Property, either initially or at a later date.
(q) "Dividends" means dividends declared by the Board.
(r) "Exchange Act" means the Securities Exchange Act of 1934, as amended.
(s) "Good Reason" means with respect to the termination of this Advisory
Agreement:
(i) Any failure to obtain a satisfactory agreement from any successor
to the Company to assume and agree to perform the Company's
obligations under this Advisory Agreement; or
(ii) Any material breach of this Advisory Agreement of any nature
whatsoever by the Company.
(t) "Gross Offering Proceeds" means the aggregate purchase price of shares
sold pursuant to the initial public offering of the Company.
(u) "Incentive Fee" means an in interest in the gain from the sale of
assets of the Company.
(v) "Independent Director" means a director of the Company who is not
associated and has not been associated within the last two years, directly
or indirectly, with the Advisor.
3
(i) A Director shall be deemed to be associated with the Advisor if
he or she:
(A) Owns an interest in the Advisor or any of its Affiliates;
(B) Is employed by the Advisor or any of its affiliates;
(C) Is an officer or director of the Advisor or any of its
Affiliates;
(D) Performs services, other than as Director, for the Company;
(E) Is a Director for more than three REITs organized by the
Advisor; or
(F) Has any material business or professional relationship with
the Advisor or any of its Affiliates.
(ii) For purposes of determining whether or not the business or
personal relationship is material, the gross revenue derived by the
prospective Independent Director from the Advisor and Affiliates shall
be deemed material per se if it exceeds 5% of the prospective
Independent Directors:
(A) Annual gross revenue, derived from all sources, during
either of the last two years; or
(B) Net worth, on a fair market value basis.
(iii) An indirect relationship shall include circumstances in which a
Director's spouse, parents, children, siblings, mothers-or fathers-in
law, sons-or daughters-in law, or brothers-or sisters-in-law.
(w) "Independent Expert" means a person with no material current or prior
business or personal business relationship with the Advisor or Directors
who is engaged to a substantial extent in the business of rendering
opinions regarding the value of assets of the type held by the Company.
(x) "Individual" means any natural person and those organizations treated
as natural persons in Section 542(a) of the Code.
(y) "Loans" means the notes and other evidences of indebtedness or
obligations acquired or entered into by the Company as lender which are
secured or collateralized by personal property, or fee or leasehold
interests in real estate or other assets, including but not limited to
first or subordinate mortgage loans, construction loans, development loans,
loans secured by capital stock or any other assets or form of equity
interest and any other type of loan or financial arrangement, such as
providing or arranging for letters of credit, providing guarantees of
obligations to third parties, or providing commitments for loans, but not
including leases which are
4
not recognized as leases for Federal income tax reporting purposes.
(z) "NASAA Guidelines Total Operating Expenses Limitation" means the
requirement that the Total Operating Expenses of the Company not exceed in
any fiscal year the greater of 2% of its Average Net Assets or 25% of its
Net Income for such year.
(aa) "NASDAQ" means the national automated quotation system operated by the
National Association of Securities Dealers, Inc.
(bb) "Net Income" means for any period, the total revenues applicable to
such period, less the total expenses applicable to such period excluding
additions to reserves for depreciation, bad debts or other similar non-cash
reserves; provided, however, Net Income for purposes of calculating
allowable Total Operating Expenses shall exclude the gain from the sale of
the Company's assets.
(cc) "Offering" means the offering of the shares pursuant to the
Prospectus.
(dd) "Organization and Offering Expenses" means those expenses payable by
the Company in connection with the formation, qualification and
registration of the Company and in marketing and distributing shares,
including, but not limited to:
(i) The preparation, printing, filing and delivery of the
Registration Statement and the Prospectus (including any amendments
thereof or supplements);
(ii) The preparing and printing of the Articles of Incorporation and
Bylaws, solicitation material and related documents and the filing
and/or recording of such documents necessary to comply with the laws
of the State of Indiana for the formation of a corporation and
thereafter for the continued good standing of a corporation;
(iii) The qualification or registration of the shares under state
securities laws;
(iv) Any escrow arrangements, including any compensation to an escrow
agent;
(v) The filing fees payable to the Securities and Exchange Commission
and to the National Association of Securities Dealers, Inc.;
(vi) The fees of the Company's counsel;
(vii) All advertising expenses incurred in connection with the
Offering, including the cost of all sales literature and the costs
related to investor and broker-dealer sales and information meetings
and marketing incentive
5
programs; and
(viii) Selling commissions, certain annual monitoring fees paid to the
Sales Agent with respect to Shares sold to clients of the Sales Agent
or Selected Dealers, marketing fees, incentive fees, due diligence
fees and wholesaling fees and expenses incurred in connection with the
sale of the Shares.
(ee) "Property" or "Properties" means the Company's partial or entire
interest in real property (including leasehold interests) and personal or
mixed property connected with such real property.
(ff) "Prospectus" means the final prospectus of the Company filed as part
of the Registration Statement as the same may at any time and from time to
time be amended or supplemented after the effective date of the
Registration Statement.
(gg) "Registration Statement" means the Registration Statement on Form S-11
(File No. 333-xxxxx) filed by the Company, and any subsequent registration
statement relating thereto filed under Rule 462(b) of the Securities Act of
1933, as amended).
(hh) "REIT" means an entity that qualifies as a real estate investment
trust under the Code.
(ii) "Shareholders" means those persons who at any particular time are
shown as holders of record of shares on the books and records of the
Company.
(jj) "Termination Date" means the effective date of any termination of this
Advisory Agreement.
(kk) "Total Operating Expenses" means aggregate expenses of every character
paid or incurred by the Company as determined under generally accepted
accounting principles, including the Advisory Fee, but excluding:
(i) The expenses of raising capital such as Organization and
Offering Expenses, legal, audit, accounting, underwriting, brokerage,
registration and other fees, printing and other such expenses and tax
incurred in connection with the issuance, distribution, transfer and
registration of the shares;
(ii) Interest payments;
(iii) Taxes;
(iv) Non-cash expenditures such as depreciation, amortization and bad
debt reserves;
(v) Incentive Fees paid in compliance with Section 9.02 of this
Advisory
6
Agreement; and
(vi) Acquisition Fees, Acquisition Expenses, real estate commissions
on resale of property and other expenses connected with the
acquisition, disposition and ownership of real estate interests,
mortgage loans or other property (such as the costs of foreclosure,
insurance premiums, legal services, maintenance, repair and
improvement of property).
(ll) "Total Property Cost" means, with regard to any Property, an amount
equal to the sum of the Contract Purchase Price of such Property plus the
Acquisition Fees paid in connection with such Property.
(mm) "Valuation" means an estimate of value of the assets of the Company as
determined by a person approved by the Independent Directors, which person
shall be independent of the Company and the Advisor.
ARTICLE 2
APPOINTMENT
2.01. Appointment. The Company appoints the Advisor to serve as its
investment advisor on the terms and conditions set out in this Advisory
Agreement, and the Advisor accepts such appointment.
ARTICLE 3
DUTIES OF THE ADVISOR
3.01. Duties of the Advisor. The Advisor undertakes to use its best efforts
to present to the Company potential investment opportunities and to provide a
continuing and suitable investment program consistent with the investment
objectives and policies of the Company as determined and adopted from time to
time by the Directors. In performance of this undertaking, subject to the
supervision of the Directors and consistent with the provisions of the
Registration Statement, Articles of Incorporation and Bylaws of the Company, as
each may at any time and from time to time be amended, the Advisor shall, either
directly or by engaging an Affiliate:
(a) Serve as the Company's investment and financial advisor and provide
research and economic and statistical data in connection with the Company's
assets and investment policies;
(b) Provide the daily management of the Company and perform and supervise
the various administrative functions reasonably necessary for the
management of the Company;
(c) Investigate, select, and, on behalf of the Company, engage and conduct
business with such persons as the Advisor deems necessary to the proper
performance of its obligations pursuant to this Advisory Agreement,
including but not limited to consultants, accountants, correspondents,
lenders, technical advisors, attorneys, brokers, underwriters, corporate
fiduciaries, escrow agents, depositaries, custodians, agents for
collection, insurers, insurance
7
agents, banks, builders, developers, property owners, mortgagors, and any
and all agents for any of the foregoing, including Affiliates of the
Advisor, and persons acting in any other capacity deemed by the Advisor
necessary or desirable for the performance of any of such services,
including but not limited to entering into contracts in the name of the
Company with any of the such persons;
(d) Consult with the officers and Directors of the Company and assist the
Directors in the formulation and implementation of the Company's financial
policies, and, as necessary, furnish the Directors with advice and
recommendations with respect to the making of investments consistent with
the investment objectives and policies of the Company and in connection
with any borrowings proposed to be undertaken by the Company;
(e) Locate, analyze and select potential investments in securities,
Property and Loans;
(f) Structure and negotiate the terms and conditions of transactions
pursuant to which investments in securities, Properties and Loans will be
made, purchased or acquired by the Company;
(g) Make investments in securities, Property and Loans on behalf of the
Company in compliance with the investment objectives and policies of the
Company;
(h) Arrange for financing, and refinancing and make other changes in the
asset or capital structure of, and dispose of, reinvest the proceeds from
the sale of or otherwise deal with the investments in securities, Property
and Loans;
(i) Provide the Directors with periodic reports regarding prospective
investments in securities, Properties and Loans;
(j) Obtain the prior approval of the Directors (including a majority of
the Independent Directors) for any and all investments in Property which do
not meet all of the requirements set out in Section 4(b) of this Advisory
Agreement;
(k) Negotiate on behalf of the Company with banks or lenders for loans to
be made to the Company, and negotiate on behalf of the Company with
investment banking firms and broker-dealers or negotiate private sales of
shares and securities or obtain loans for the Company, but in no event in
such a way so that the Advisor shall be acting as broker-dealer or
underwriter; and provided, further, that any fees and costs payable to
third parties incurred by the Advisor in connection with the foregoing
shall be the responsibility of the Company;
(l) Obtain reports (which may be prepared by the Advisor or its
Affiliates), where appropriate, concerning the value of investments or
contemplated investments of the Company in Property and/or Loans;
(m) Obtain for, or provide to, the Company such services as may be
required in acquiring, managing and disposing of Company Property and/or
Loans, including, but not
8
limited to:
(i) The negotiation, making and servicing of Loans;
(ii) The disbursement and collection of Company monies;
(iii) The payment of debts of and fulfillment of the obligations of
the Company; and
(iv) The handling, prosecuting and settling of any claims of or
against the Company, including, but not limited to, foreclosing and
otherwise enforcing mortgages and other liens securing the Loans.
(n) From time to time, or at any time reasonably requested by the
Directors, make reports to the Directors of its performance of services to
the Company under this Agreement;
(o) Communicate on behalf of the Company with Shareholders as required to
satisfy the reporting and other requirements of any governmental bodies or
agencies to Shareholders and third parties and otherwise as requested by
the Company;
(p) Provide or arrange for administrative services and items, legal and
other services, office space, office furnishings, personnel and other
overhead items necessary and incidental to the Company's business and
operations;
(q) Provide the Company with such accounting data and any other
information so requested concerning the investment activities of the
Company as shall be required to prepare and to file all periodic financial
reports and returns required to be filed with the Securities and Exchange
Commission and any other regulatory agency, including annual financial
statements;
(r) Maintain the books and records of the Company;
(s) Supervise the performance of such ministerial and administrative
functions as may be necessary in connection with the daily operations of
the Properties and Loans;
(t) Provide the Company with all necessary cash management services;
(u) Do all things necessary to assure its ability to render the services
described in this Advisory Agreement;
(v) Perform such other services as may be required from time to time for
management and other activities relating to the assets of the Company as
the Advisor shall deem advisable under the particular circumstances;
(w) Deliver to or maintain on behalf of the Company copies of all
appraisals obtained in
9
connection with investments in securities, Properties and Loans; and
ARTICLE 4
AUTHORITY OF THE ADVISOR
4.01. Authority of the Advisor. The authority of the Advisor shall be as
follows:
(a) The Directors delegate to the Advisor the authority to:
(i) Locate, analyze and select investment opportunities;
(ii) Structure the terms and conditions of transactions pursuant to
which investments will be made or acquired for the Company;
(iii) Invest in Loans, Properties and securities in compliance with
the investment objectives and policies of the Company;
(iv) Arrange for financing or refinancing, or make changes in the
asset or capital structure of, and dispose of or otherwise deal with,
Loans, Properties and securities;
(v) Advise the Company regarding leases and service contracts for
Properties;
(vi) Oversee non-affiliated property managers and other
non-affiliated Persons who perform services for the Company; and
(vii) Undertake accounting and other record-keeping functions at the
Property level.
(b) Notwithstanding Section 4.01(a) of this Advisory Agreement, any
investment in Property, including any acquisition of any Property by the
Company (as well as any financing acquired by the Company in connection
with such acquisition), will require the prior approval of the Directors
unless, prior to completion of any such transaction, the Advisor provides
the Company with:
(i) An appraisal for the Property indicating that the Total Property
Cost of the Property does not exceed the Appraised Value of the
Property; and
(ii) A representation from the Advisor that the Property, in
conjunction with the Company's other investments and proposed
investments, at the time the Company is committed to purchase the
Property, is reasonably expected to fulfill the Company's investment
objectives and policies as established by the Directors and then in
effect.
(c) If a transaction requires approval by the Independent Directors, the
Advisor will deliver to the Independent Directors all documents required by
them to properly evaluate the proposed investment in such Property or such
Loan.
10
4.02. Notwithstanding the other provisions of this Advisory Agreement, the
prior approval of the Directors, including a majority of the Independent
Directors, will be required for transactions involving:
(a) Investments in Properties made through joint venture arrangements with
Affiliates of the Advisor;
(b) Investments in Properties which are not contemplated by the terms of
the Prospectus;
(c) Transactions that present issues which involve conflicts of interest
for the Advisor (other than conflicts involving the payment of fees or the
reimbursement of expenses); and
(d) The lease of assets to any Director or the Advisor.
4.03. Modification or Revocation. The Directors may, at any time upon the
giving of notice to the Advisor, modify or revoke the authority set out in this
Article 4. If and to the extent the Directors do so modify or revoke, the
Advisor shall from that time forward submit to the Directors for prior approval
such proposed transactions involving investments in Property as thereafter
require prior approval, provided however, that such modification or revocation
shall be effective upon receipt by the Advisor and shall not be applicable to
investment transactions to which the Advisor has committed the Company prior to
the date of receipt by the Advisor of such notification.
ARTICLE 5
BANK ACCOUNTS
5.01. Bank Accounts. The Advisor may establish and maintain such bank
accounts as are necessary and appropriate to carry out the provisions of this
Advisory Agreement.
ARTICLE 6
RECORDS; ACCESS
6.01. Records; Access. The Advisor shall maintain appropriate records of
all its activities undertaken pursuant to this Advisory Agreement and make such
records available for inspection by the Directors and by counsel, auditors and
authorized agents of the Company, at any time or from time to time during normal
business hours. The Advisor shall at all reasonable times have access to the
books and records of the Company.
ARTICLE 7
LIMITATIONS ON ACTIVITIES
7.01. Limitations on Activities. Anything else in this Advisory Agreement
to the contrary notwithstanding, the Advisor shall refrain from taking any
action which, in its sole judgment made in good faith, would adversely affect
the status of the Company as a REIT, subject the Company to regulation under the
Investment Company Act of 1940, would violate any law, rule, regulation or
statement of policy of any governmental body or agency having jurisdiction over
the Company, its shares or other securities, or otherwise not be permitted by
the Articles of Incorporation or Bylaws,
11
except if such action shall be ordered by the Directors, in which case the
Advisor shall notify promptly the Directors of the Advisor's judgment of the
potential impact of such action and shall refrain from taking such action until
it receives further clarification or instructions from the Directors. In such
event the Advisor shall have no liability for acting in accordance with the
specific instructions of the Directors so given. Notwithstanding the provisions
of this Section 7.01, the Advisor, its partners and employees, and partners,
stockholders, directors and officers of the Advisor's partners shall not be
liable to the Company, or to the Directors or Shareholders for any act or
omission by the Advisor, its partners or employees, or partners, stockholders,
directors or officers of the Advisor's partners except as specifically provided
otherwise in of this Advisory Agreement.
ARTICLE 8
RELATIONSHIP WITH DIRECTORS
8.01. Relationship with Directors. Partners and employees of the Advisor or
partners in the Advisor or any corporate parents of a partner, or directors,
officers or stockholders of any partner or corporate parent of a partner may
serve as a Director and as officers of the Company, except that no partner in or
employee of the Advisor or its Affiliates who also is a Director or officer of
the Company shall receive any compensation from the Company for serving as a
Director or officer other than for reasonable reimbursement for travel and
related expenses incurred in attending meetings of the Directors.
ARTICLE 9
FEES
9.01. Advisory Fee. The Advisory Fee shall be an amount equal to 1.75% per
year of the Average Invested Assets of the Company. Such fee shall be calculated
monthly, beginning with the month in which the Company first makes an investment
in securities, Properties or Loans, on the basis of one-twelfth of 1.75% of the
Average Invested Assets for the preceding month, computed as a daily average.
Such fee shall be payable on the first business day of the month following the
month for which it applies. If, at the end of any fiscal quarter, Total
Operating Expenses exceed the NASAA Guidelines Total Operating Expenses
Limitation over the immediately preceding 12 months, payment of such fee will be
withheld to the extent necessary to cause the Company to satisfy the NASAA
Guidelines Total Operating Expenses Limitation. Any portion of the Advisory Fee
not paid due to the Company's failure to satisfy the NASAA Guidelines Total
Operating Expenses Limitation shall be paid at the end of the next fiscal
quarter to the extent such payment would not cause the Company to fail to
satisfy the NASAA Guidelines Total Operating Expenses Limitation if such payment
were to be included in Total Operating Expenses for the 12 months preceding such
payment.
9.02. Incentive Fee. At such time as the business and affairs of the
Company are wound down, the Company shall pay the Advisor an Incentive Fee in
the amount of 15% of the net proceeds from the sale of the assets of the Company
remaining after payment to the Shareholders, in the aggregate, of an amount
equal to 100% of the original issue price of the shares, plus an amount equal to
6% of the original issue price of the shares per year cumulative. For purposes
of this Section 9.02, the original issue price of the shares shall be reduced by
prior cash distributions to
12
Shareholders of proceeds from the sale of Company assets.
ARTICLE 10
EXPENSES
10.01. Expenses. In addition to the compensation paid to the Advisor
pursuant to Section 9.01. of this Advisory Agreement, the Company shall pay
directly or reimburse the Advisor for the following expenses:
(a) The Company's Organizational and Offering Expenses, provided, however,
that within 60 days after the end of the month in which the Offering
terminates, the Advisor shall reimburse the Company for any Organizational
and Offering Expense reimbursements received by the Advisor pursuant to
this Section 10.01 to the extent that such reimbursements, when added to
the balance of the Organizational and Offering Expenses (excluding selling
commissions, and fees paid and expenses reimbursed to the Selected Dealers)
paid directly by the Company, exceed fifteen percent of the Gross Offering
Proceeds, provided, further, however, that the Advisor shall be responsible
for the payment of all Organizational and Offering Expenses (excluding such
commissions and such fees and expense reimbursements) in excess of fifteen
percent of the Gross Offering Proceeds;
(b) Acquisition Expenses incurred in connection with the initial
investment of the funds of the Company;
(c) Expenses other than Acquisition Expenses incurred in connection with
the investment of the funds of the Company;
(d) Interest and other costs for borrowed money, including discounts,
points and other similar fees;
(e) Taxes and assessments on income or Property and taxes as an expense of
doing business;
(f) Costs associated with insurance required in connection with the
business of the Company or by the Directors;
(g) Expenses of managing and operating Properties owned by the Company,
whether payable to an Affiliate of the Company or a non-affiliated Person;
(h) Fees and expenses of legal counsel for the Company;
(i) Fees and expense of non-affiliated auditors and accountants for the
Company;
(j) All expenses in connection with payments to the Directors and meetings
of the Directors and Shareholders;
(k) Expenses associated with listing the shares and securities on a
securities exchange or
13
NASDAQ if requested by the Directors or with the issuance and distribution
of shares and securities, such as selling commissions and fees, taxes,
legal and accounting fees, listing and registration fees, and other
Organization and Offering Expenses;
(l) Expenses connected with payments of Dividends in cash or otherwise
made or caused to be made by the Directors to the Shareholders;
(m) Expenses of organizing, revising, amending, converting, modifying, or
terminating the Company or the Articles of Incorporation;
(n) Expenses of maintaining communications with Shareholders, including
the cost of preparation, printing and mailing annual reports and other
Shareholder reports, proxy statements and other reports required by
governmental entities;
(o) Expenses related to the Company's investments in securities,
Properties and Loans and other fees relating to making investments
including personnel and other costs incurred in securities, Property or
Loan transactions where a fee is not payable to the Advisor; and
(p) All other expenses the Advisor incurs in connection with providing
services to the Company including reimbursement to the Advisor or its
Affiliates for the cost of rent, goods, materials and personnel incurred by
them based upon the compensation of the persons involved and an appropriate
share of overhead allocable to those persons. No reimbursement shall be
made for the cost of personnel to the extent that such personnel are used
in transactions for which the Advisor receives a separate fee. Expenses
incurred by the Advisor on behalf of the Company and payable pursuant to
this Section 10 shall be reimbursed quarterly to the Advisor within 60 days
after the end of each quarter. The Advisor shall prepare a statement
documenting the expenses of the Company during each quarter, and shall
deliver such statement to the Company within 45 days after the end of each
quarter.
ARTICLE 11
MISCELLANEOUS PROVISIONS
11.01. Other Services. Should the Directors request that the Advisor or any
partner or employee of the Advisor render services for the Company other than
set forth in Article 3 of this Advisory Agreement, such services shall be
separately compensated and shall not be deemed to be services pursuant to the
terms of this Advisory Agreement.
11.02. Refund by Advisor.
(a) Within 60 days after the end of any fiscal quarter of the Company
which begins following the date the Company first commences operations, if
Total Operating Expenses of the Company during the fiscal year, ending at
the end of such quarter exceed the NASAA Guidelines Total Operating
Expenses Limitation during that fiscal year and a majority of the
Independent Directors find this excess amount justified based on such
unusual and non-recurring factors which they deem sufficient, the Advisor
may be reimbursed in future years
14
for the full amount of such excess expenses, or any portion of such
expenses, but only to the extent such reimbursement would not cause the
Company's Operating Expenses to exceed the NASAA Guidelines Total Operating
Expenses Limitation in any such year. In no event shall the Operating
Expenses paid by the Company in any twelve month period ending at the end
of a fiscal quarter exceed the NASAA Guidelines Total Operating Expenses
Limitation. All figures used in such computation shall be determined in
accordance with generally accepted accounting principles applied on a
consistent basis. If the Advisor receives an incentive fee for the sale of
Property, Net Income, for purposes of calculating the Operating Expenses,
shall exclude the gain from the sale of such Property.
(b) To the extent Organizational and Offering Expenses payable by the
Company exceeds 15% of the Gross Offering Proceeds, the excess will be paid
by the Advisor.
11.03. Other Activities of the Advisor. Other activities of the Advisor
shall be governed as follows:
(a) Nothing contained in this Advisory Agreement shall prevent the Advisor
from engaging in other activities, including, but not necessarily limited
to, the rendering of advice to other investors (including other REITs) and
the management of other programs advised, sponsored or organized by the
Advisor or its Affiliates, nor shall this Advisory Agreement limit or
restrict the right of any director, officer, employee, partner or
shareholder of the Advisor or its Affiliates to engage in any other
business or to render services of any kind to any other partnership,
corporation, firm, individual, trust or association. The Advisor may, with
respect to any investment in which the Company is a participant, also
render advice and service to each and every other participant in such
investment. The Advisor shall report to the Directors the existence of any
condition or circumstance, existing or anticipated, of which it has
knowledge, which creates or could create a conflict of interest between the
Advisor's obligations to the Company and its obligations to or its interest
in any other partnership, corporation, firm, individual, trust or
association. The Advisor or its Affiliates shall promptly disclose to the
Directors knowledge of such condition or circumstance. If the Advisor,
Director or Affiliates of such persons have sponsored other investment
programs with similar investment objectives which have investment funds
available at the same time as the Company, it shall be the duty of the
Directors (including the Independent Directors) to adopt the method set
forth in the Registration Statement or another reasonable method by which
properties are to be allocated to the competing investment entities and to
use their best efforts to apply such method fairly to the Company.
(b) The Advisor shall be required to use its best efforts to present a
continuing and suitable investment program to the Company which is
consistent with the investment policies and objectives of the Company, but
neither the Advisor nor any Affiliate of the Advisor shall be obligated
generally to present any particular investment opportunity to the Company
even if the opportunity is of character which, if presented to the Company,
could be taken by the Company.
(c) In the event that the Advisor or its Affiliates is presented with a
potential investment which might be made by the Company and by another
investment entity which the Advisor
15
or its Affiliates advises or manages, the Advisor shall consider the
investment portfolio of each entity, cash flow of each entity, the effect
of the acquisition on the diversification of each entity's portfolio,
rental payments during any renewal period, the estimated income tax effects
of the purchase on each entity, the policies of each entity relating to
leverage, the funds of each entity available for investment, the amount of
equity required to make the investment and the length of time such funds
have been available for investment. To the extent that an investment might
be suitable for the Company and for another investment entity which is
advised or managed by the Advisor, the Advisor shall give priority to the
investment entity, including the Company, which has uninvested funds for
the longest period of time. The Advisor may consider such investment for
other placement.
11.04. Relationship of Advisor and Company. The Company and the Advisor
agree that they have not created and do not intend to create by this Advisory
Agreement a joint venture or partnership relationship between them and nothing
in this Advisory Agreement shall be construed to make them partners or joint
venturers or impose any liability as partners or joint venturers on either of
them.
11.05. Term; Termination of Agreement. This Advisory Agreement shall
continue in force until December 31, 2004 and thereafter shall be automatically
renewed from year to year, unless either party shall give notice in writing of
non-renewal to the other party not less than 60 days before the end of any such
year.
11.06. Termination by Either Party. This Advisory Agreement may be
terminated immediately without penalty by the Advisor by written notice of
termination to the Company upon the occurrence of events which would constitute
Good Reason or by the Company without cause or penalty by action of the
Directors, the Independent Directors or by action of a majority of the
Shareholders, in either case upon 60 days' written notice.
11.07. Assignment Prohibition. This Advisory Agreement may not be assigned
by the Advisor without the approval of a majority of the Directors (including a
majority of the Independent Directors), provided, however, that such approval
shall not be required in the case of an assignment to a corporation,
partnership, association, trust or organization which may take over the assets
and carry on the affairs of the Advisor, provided: (i) that at the time of such
assignment, such successor organization shall be owned substantially by the then
partners of the Advisor or their Affiliates and only if such entity has a net
worth of at least $5,000,000, and (ii) that a general partner of the Advisor
shall deliver to the Directors a statement in writing indicating the ownership
structure and net worth of the successor organization and a certification from
the new Advisor as to its net worth. Such an assignment shall bind the assignees
hereunder in the same manner as the Advisor is bound by this Advisory Agreement.
The Advisor may assign any rights to receive fees or other payments under this
Agreement without obtaining the approval of the Directors. This Advisory
Agreement shall not be assigned by the Company without the consent of the
Advisor, except in the case of an assignment by the Company to a corporation or
other organization which is a successor to the Company, in which case such
successor organization shall be bound hereunder and by the terms of said
assignment in the same manner as the Company is bound by this Advisory
Agreement.
11.08. Payments to and Duties of Advisor Upon Termination.
16
(a) After the Termination Date, the Advisor shall not be entitled to
compensation for further services pursuant to this Advisory Agreement
except it shall be entitled to receive from the Company within 30 days
after the effective date of such termination the following:
(i) All unpaid reimbursements of Organization and Offering Expenses
and of Operating Expenses payable to the Advisor; and
(ii) All earned but unpaid Advisory Fees payable to the Advisor prior
to the termination of this Agreement.
(b) Notwithstanding the provisions of Section 11.08(a) of this Advisory
Agreement, in the event this Advisory Agreement is terminated by the
Company for Cause or by the Advisor for other than Good Reason, the Advisor
will not be entitled to receive the sums in subparagraphs 20(a)(i)-(vi),
above. All amounts payable to the Advisor in the event of a termination
shall be evidenced by a non-interest bearing promissory note (the "Note")
having a principal amount of the unpaid amount payable to the Advisor.
(c) If this Agreement is terminated by the Company for any reason other
than Cause, by either party in connection with a Change of Control, or by
the Advisor for Good Reason, the Advisor shall be entitled to payment of
the Termination Fee.
(d) The Termination Fee shall be paid in a manner determined by the
Directors, but in no event shall any portion of the Termination Fee remain
unpaid three years after the termination, non-renewal or substantial
modification of this Agreement, nor shall the Termination Fee be paid in
less than 12 equal quarterly installments, with interest, on the unpaid
balance at the prime rate of interest then in effect as announced by The
Bank of New York. Notwithstanding the preceding sentence, any amounts which
may be deemed payable at the date the obligation to pay the Termination Fee
is incurred (i) shall be an amount which provides compensation to the
Advisor only for that portion of the holding period for the respective
Properties during which the Advisor provided services to the Company, (ii)
shall not be due and payable until the Property to which such fees relate
is sold or refinanced, and (iii) shall not bear interest until the Property
to which such fees relate is sold or refinanced. A portion of the
Termination Fee shall be paid as each Property owned by the Company on the
Termination Date is sold. The portion of the Termination Fee payable upon
each such sale shall be equal to (i) the Termination Fee multiplied by (ii)
the percentage calculated by dividing the Appraised Value (at the
Termination Date) of the Property sold by the Company divided by the total
Appraised Value (at the Termination Date) of all Properties owned by the
Company on the Termination Date.
(e) The Note for amounts payable as described above shall mature upon the
liquidation of the Company (or ten years from date of issuance whichever is
earlier) and shall be payable at any time prior to maturity. The
compensation payable under this Subsection shall be paid or delivered to
the Advisor within 30 days after funds shall become available to the
Company for the making of such payments.
17
(f) Notwithstanding the foregoing, the Advisor shall not be entitled to
payment of the Termination Fee in the event this Advisory Agreement is
terminated because of failure of the Company and the Advisor to establish,
pursuant to Section 9(j) of this Advisory Agreement, a fee structure
appropriate for an entity with a perpetual life in the event the Shares are
listed on a national securities exchange or are included for quotation on
NASDAQ.
(g) The Advisor shall promptly upon termination:
(i) Pay over to the Company all money collected and held for the
account of the Company pursuant to this Agreement, after deducting any
accrued compensation and reimbursement for its expenses to which it is
then entitled;
(ii) Deliver to the Directors a full accounting, including a
statement showing all payments collected by it and a statement of all
money held by it, covering the period following the date of the last
accounting furnished to the Directors;
(iii) Deliver to the Directors all assets, including Properties and
Loans, and documents of the Company then in the custody of the
Advisor; and
(iv) Cooperate with the Company to provide an orderly management
transition.
11.09. Indemnification by the Company. The Company shall indemnify and hold
harmless the Advisor and its Affiliates, including their respective officers,
directors, partners and employees, from all liability, claims, damages or losses
arising in the performance of their duties pursuant to this Advisory Agreement,
and related expenses, including reasonable attorneys' fees, to the extent such
liability, claims, damages or losses and related expenses are not fully
reimbursed by insurance, subject to any limitations imposed by the laws of the
State of Indiana, the Articles of Incorporation or the Bylaws of the Company.
Notwithstanding the foregoing, the Advisor shall not be entitled to
indemnification or be held harmless pursuant to this Section 11.09 for any
activity which the Advisor shall be required to indemnify or hold harmless the
Company pursuant to Section 11.10 of this Advisory Agreement.
11.10. Indemnification by Advisor. The Advisor shall indemnify and hold
harmless the Company from liability, claims, damages, taxes or losses and
related expenses including attorneys' fees, to the extent that such liability,
claims, damages, taxes or losses and related expenses are not fully reimbursed
by insurance and are incurred by reason of the Advisor's bad faith, fraud,
willful misfeasance, misconduct, negligence or reckless disregard of its duties.
11.11. Notices. Any notice, report or other communication required or
permitted to be given pursuant to this Advisory Agreement shall be in writing
unless some other method of giving such notice, report or other communication is
accepted by the party to whom it is given, and shall be given by being delivered
by hand or by overnight mail or other overnight delivery service to the
following addresses:
18
To the Directors Alanar Real Estate Investment
and to the Company: Trust Series 1 Corporation
101 S. Main St.
Sullivan, IN 47882
To the Advisor: Alanar Inc.
101 S. Main St.
Sullivan, IN 47882
Either party may at any time give notice in writing to the other party of a
change in its address for the purposes of this Section 11.11.
11.12. Modification. This Advisory Agreement shall not be changed,
modified, terminated, or discharged, in whole or in part, except by an
instrument in writing signed by both of its parties or their respective
successors or assignees.
11.13. Severability. The provisions of this Advisory Agreement are
independent of and severable from each other, and no provision shall be affected
or rendered invalid or unenforceable by virtue of the fact that for any reason
any other or others of them may be invalid or unenforceable in whole or in part.
11.14. Construction. This Advisory Agreement shall be governed by,
construed and enforced in accordance with the laws of the State of Indiana.
11.15. Entire Agreement. This Advisory Agreement contains the entire
agreement and understanding among its parties with respect to its subject
matter, and supersedes all prior and contemporaneous agreements, understandings,
inducements and conditions, express or implied, oral or written, of any nature
whatsoever with respect to the subject matter of this Advisory Agreement. The
express terms of this Advisory Agreement control and supersede any course of
performance and/or usage of the trade inconsistent with any of the terms. This
Advisory Agreement may not be modified or amended other than by an agreement in
writing.
11.16. Indulgences, Not Waivers. Neither the failure nor any delay on the
part of a party to exercise any right, remedy, power or privilege under this
Advisory Agreement shall operate as a waiver of such right, remedy, power or
privilege, nor shall any single or partial exercise of any right, remedy, power
or privilege preclude any other or further exercise of the same or of any other
right, remedy, power or privilege, nor shall any waiver of any right, remedy,
power or privilege with respect to any occurrence be construed as a waiver of
such right, remedy, power or privilege with respect to any other occurrence. No
waiver shall be effective unless it is in writing and is signed by the party
asserted to have granted such waiver.
11.17. Gender. Words used in this Advisory Agreement regardless of the
number and gender specifically used, shall be deemed and construed to include
any other number, singular or plural, and any other gender, masculine, feminine
or neuter, as the context requires.
11.18. Titles Not to Affect Interpretation. The titles of sections and
contained in this
19
Advisory Agreement are for convenience only, and they neither form a part of
this Advisory Agreement nor are they to be used in the construction or
interpretation of it.
11.19. Execution in Counterparts. This Advisory Agreement may be executed
in any number of counterparts, each of which shall be deemed to be an original
as against any party whose signature appears on such counterpart, and all of
which shall together constitute one and the same instrument. This Advisory
Agreement shall become binding when one or more counterparts on this Advisory
Agreement, individually or taken together, shall bear the signatures of all of
the parties reflected on it as the signatories.
This Advisory Agreement is executed as set out below:
ALANAR REAL ESTATE
INVESTMENT TRUST SERIES 1
CORPORATION
By:
--------------------------------------
Name: Vaughn A. Reeves, Jr.
------------------------------------
Title: President
-----------------------------------
Date:
------------------------------------
ALANAR INCORPORATED
By:
--------------------------------------
Name: Vaughn A. Reeves, Sr.
------------------------------------
Title: Chief Executive Officer
----------------------------------
Date:
------------------------------------
20